Daily News Digest- 8th July'14

Thought of the Day:

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Following made the Headlines:

India:

• India Gets a Money Order: With the government expected to announce a big-bang privatisation programme in the July 10 budget, the loudest pop could come from the sale of a 5-10% stake in ONGC that would raise as much as 35,000 crore at current market prices, a record for stake sales in state-owned companies. This would make it much bigger than the Coal India initial public offering (IPO) of 2010, in which the government raised 15,500 crore. An inter-ministerial Cabinet note has been floated in this regard, according to two government officials. In 2012, the sale of a 5% stake in the company had fetched the government around 12,000 crore. It's not clear, however, what amount of stake the government will eventually put on sale. “We will go ahead with ONGC in this year itself. The process of appointing merchant bankers will soon be initiated,“ said one of the officials. The government currently holds a 68.94% stake in the explorer. A draft proposal of the finance ministry's Department of Divestment to the Cabinet Committee on Economic Affairs has suggested a 5% divestment. The proposal, of which ET has a copy, suggests offering another 0.25% of equity to employees at a possible discount of 5%. The offer for sale based on this plan would. 18,000 crore. “Keeping in view the number of disinvestment cases in the pipeline, the market appetite and the present shareholding of the government, it is proposed that 5% of paid-up capital of ONGC may be divested in the domestic market as per Sebi Rules and Regulations,“ the note said. The 2012 share sale took place at a time the government badly needed the money to plug the holes in revenue, but market sentiment was poor. The country's largest insurer, state-owned Life Insurance Corporation (LIC), had to bail out the government at the time, picking up 88% of the offer for sale (OFS).

• Khulja SIM SIM: Allow Pak Mobiles to Operate: India may soon allow mobile phone SIM cards issued in Pakistan to function in the country, a unilateral measure that could boost trade ties between the two neighbours that have so far cited security concerns to deny a long standing demand of businessmen on both sides of the border. Commerce Secretary Rajeev Kher has written to the home ministry asking that Pakistani SIM cards be allowed access in India, a government official told ET, adding, “Pakistanis coming on visas are not terrorists. Giving SIM card access will only enhance business ties between the two nations.“ Kher's letter comes ahead of a meeting between Commerce and Industry Minister Nirmala Sitharaman and her Pakistani counterpart Khurram Dastgir Khan on July 24. This will be the first bilateral ministerial meeting since the Narendra Modiled government took charge at the Centre. The two ministers are scheduled to meet on the sidelines of the South Asian Free Trade Area (Safta) ministerial council in Bhutan and expected to discuss the road map for liberalisation of bilateral trade. “By allowing sim card access, India may be in a better position to monitor telecom traffic,” the official said on condition of anonymity. “A person who has to communicate may anyway use other means such as Skype. If you bring along a Dubai sim, it will work in India. So how is it (the ban on Pakistani sim cards) enhancing security?” Although Pakistani businessmen enjoy a 10-city visa access to India, they are forced to procure local sim cards or turn to other means to stay connected. Pakistan does not allow sim cards issued in India to function in its territory either. The commerce department has also raised the matter with the telecom department, which has said that access for Pakistani sim cards may be allowed subject to clearance by the home ministry. Experts say the home ministry’s nod may lead to better regional integration and boost bilateral trade, which stood at $2.6 billion in 2013-14. “It is more about giving the same treatment to visitors from Pakistan as to people from the rest of the world. This will improve communication and business between the two sides like never before and will have a multiplier effect,” said Nisha Taneja, professor with think tank ICRIER. Buying a local sim in India is cumbersome for Pakistani businessmen given the numerous security checks that are carried out, Taneja said, adding, “If we allow Pakistani sim cards to function in India, we must ensure that it is not done in a complex way that would discourage people.” India had allowed investments from Pakistan two years ago through the Foreign Investment Promotion Board, along with one-year multiple entry visas for business visitors that permit entry and exit through different cities. The government expects Pakistan to soon grant India non-discriminatory market access (NDMA), which will facilitate more trade through official channels.

• Will Rajini Now Turn Starbucks into Kaapi?: Starbucks may be the world's biggest coffee chain but it could be in for one of its toughest battles yet as it seeks to make a dent in the filter kaapi capital of India -Chennai. The Seattle, US-based company will enter this coffee-crazy city on Tuesday by launching three outlets. To do well, Starbucks will not only have to contend with some stiff competition from traditional names such as Madras Coffee House, it will also have to jostle with the various Kumbakonam degree coffee outlets dotting the city. Added to this, it will also be vying for space with upmarket rivals Café Coffee Day, Costa Coffee and Gloria Jean's. Coffee consumption in India stood at 90,000 tonnes in calendar year 2013. Of this, Tamil Nadu accounts for more than 40%. “Chennai is and will definitely remain the hardcore coffee market in India,“ said Ramesh Rajah, president of Coffee Exporters' Association of India. Starbucks ventured into India with an equal-stake joint venture between Starbucks Coffee Company and Tata Global Beverages. It rapidly scaled up and opened 12 Starbucks stores during 201213 in Mumbai and New Delhi. As of July, it has 49 stores in India. Coffee experts told ET that coffee drinkers in Chennai want the traditional taste and even if they opt for other varieties it's mostly during weekends. Also, the city's coffee lovers visit upmarket outlets for variants such as cold coffee -hot coffee accounts for less than 10% of sales at most of these outlets. “People who (have) worked in the US or the expat community will associate themselves with Starbucks as they are the market leaders in the US and well known for their ambience. But for a person in Mylapore (in Chennai), it's the traditional coffee that matters and not (the) ambience,“ Rajah added. Harish Bijoor, brand expert and CEO of Harish Bijoor Consults, said Chennai will be the ultimate testing ground for Starbucks. “In markets such as Mumbai and Delhi it is easy for any coffee maker to experiment. But Chennai is known for coffee heritage and experiments don't work here. They have to find a new strategy.“

• Carrefour to Bid Adieu to India, Close Shops by September End: Carrefour, France's largest retailer, said it plans to close its five stores in India, ending its four-year presence here. The company informed managers in the country of its decision this evening, people familiar with the matter said. Carrefour is exiting the country after the failure of talks with billionaire Sunil Mittal's Bharti Group to form a joint venture for its wholesale business there. The withdrawal will be effective at the end of September, Boulogne-Billancourt, France-based Carrefour said in a statement on Monday. Until then, the company will continue to be “fully engaged with all its employees, suppliers, partners and customers to ensure a smooth transition,“ it said. India's retail market is projected to be worth $865 billion by 2023, according to consultant Technopak Advisors. Local laws require international retailers to find an Indian partner to open supermarkets. Tesco is the only global chain that plans to open such outlets, with India's Tata Group. Wal-Mart Stores, Germany's Metro and Carrefour all run wholesale warehouse-like stores where only registered traders can shop for goods. Franck Kenner, a spokesman at Carrefour's Indian unit, declined to comment when asked about whether the company is considering selling any of its stores to rivals.

• Home-grown Food Brands Keep Private Equity At Bay: Srinivas Kamath, owner of Naturals ice-cream brand, gets a call or a mail from some private equity investor or another keen to pick up a stake in his firm at least once in a month, and the second-generation entrepreneur always replies, “We are not interested.“ “Why part with shares when borrowing money is cheaper?“ he reasons. Kamath, 30, is among a clutch of entrepreneurs that has chosen not to let private equity investors into their business despite being constantly approached. Promoters of Wagh Bakri tea, Parle Products, Haldiram's and Malas Jams are some other food entrepreneurs who have stayed away from private equity funding, for reasons ranging from fear of interference in their business to easy access to bank loans. Parag Desai, executive director at Wagh Bakri, is wary that interference from outside investors can possibly disrupt the culture in the company. “We would rather control our business instead of bringing private equity firms that have their own set of working style and agenda which might not match ours,“ he says. So when the tea maker, which has annual revenues of 900 crore, recently erected a new plant, it funded it through bank loans. At a time when a large number of entrepreneurs across industries tap into PE investments to grow aggressively as well as to boost their valuations, these select food brand promoters say private investors cannot add any value in an industry they know best and that they are in no haste to expand their business. Murtaza Mala, partner at 200crore Mala's Fruit Products that sells jams and squashes, says, “We have built the business in a sustainable manner and would like to retain it. Hence, we also expanded conservatively for a long-term growth rather than building the business quickly for a valuation game.“ So, is it a good thing to keep PE investors away? Many people think it's not.

• Arvind Plans to Increase Borrowing Limit to 5,000 cr: Apparels and textiles firm Arvind plans to increase its borrowing limit to 5,000 crore in order to fund expansion activities as well as for future business requirements. The Ahmedabad-based company will be seeking shareholders' approval on the same at its Annual General Meeting on July 30. In a filing to the BSE, the company said its current borrow 3,000 crore, which was approved limit is in the AGM held on September 30, 2006. “Keeping in view the company's business requirements and growth plans, it is considered to increase the said borrowing limit from 3,000 crore to 5,000 crore,“ the filing said.

• Mahindra Holidays to Acquire 18.8% Stake in Finland's Club Resorts Oy: Mahindra Holidays and Resorts India, the hospitality arm of Mahindra Group, is acquiring 18.8% stake in Holiday Club Resorts Oy, a Finland-headquartered vacation ownership company, for 13 million. A top executive said Mahindra Holidays will have the right to increase its ownership over a period of two years. “The acquisition gives us a base to grow our international footprint. We think it's a better way to increase our global footprint with having a company in western Europe rather than trying to do it from here,“ Arun Nanda, chairman at Mahindra Holidays, told ET. “The potential in the Indian market is so huge that I would want the management here to focus on local growth and use this company to grow in the western world.“ Mahindra Holidays will fund the acquisition through a special purpose vehicle (SPV) and offshore funding. The acquisition will be completed in a month's time post regulatory approvals. After the acquisition, Mahindra Holidays and Holiday Club will continue to function as separate entities and retain their brands. Nanda, however, expressed larger interests in the company. “Why would I buy 18.8%? It gives me an opportunity to plan and execute further steps, rather than doing it in one go,“ he said when questioned about the company's plans to grow its stake in the Finnish timeshare company. With this move, Mahindra Holidays will work closely with Holiday Club to set up a company in West Asia and grow in that region. “There is a huge growth opportunity in the Middle East as their method of travelling has changed: from travelling solo to travelling with families. This would be my first priority,“ Nanda said. Headquartered in Europe, Holiday Club Resorts Oy has 32 resorts, 24 of which are located in Finland, two in Sweden and six in Spain. Seven of these resorts have spa hotels with indoor water parks, three have golf course and there are five indoor theme parks for children. Nanda expects the acquisition to bring synergies between the companies in the areas like technology, management and creation of resorts with design efficiency, cost and speed.

• India's Overall Telecom User Base Up at 938.34 M: Reliance Communications lost over two million users in May while market leader Bharti Airtel added the most in the month which saw the country's overall subscriber base increase to 938.34 million, according to data released by the sector regulator. While RCOM, India's fourth largest carrier, ended May with 108.3 million subscribers, or an 11.9% share of the market at May end, Bharti Airtel added 1.65 million subscribers, taking its overall base to over 208 million and a 22.88% market share. Idea Cellular, the No. 3 operator, added 1.16 million subscribers, taking overall base to 137.7 million, or 15.13% market share, while Vodafone India, the country's second largest operator, added 982,381 new subscribers to end the month with 168.2 million users and an 18.49% market share.

• YepMe taps Actor Sonu Sood as brand envoy of sportswear: Yepme India's first online shopping brand has launched Sonu Sood as their brand ambassador of sportswear collection. As one knows that Sonu Sood is a famous and talented Bollywood actor in India who has good popularity among the Indian youths. Sonu Sood has worked in a lot of super hit Indian movies such as Dabang, R Rajkumar, Singh is King etc. So Yepme is providing an opportunity to Indian youths to dress like their super star Sonu Sood. Anyone who wants fashionable sportswear has now been great opportunity to get top quality stylish sportswear. This is because of a new announcement of Yepme as they have launched new Sonu Sood sports collection of various designs and styles. Yepme's sportswear includes the latest men's fashion such as Crew neck tees, Polos, Muscle tees, workout Vests, Tracksuits and Sports shoes. According to source at Yepme.com, the main aim is to make it easy for people's to get stylish sportswear online. Yepme has designed a separate page for all activity and products of Sonu Sood and named it "Sonu Sood Collection,. Mr Vivek Gaur, CEO, Yepme.com, speak, "Today's all teenagers have become more aware about fitness, that's why sports and exercise have become daily routine of their lifestyle. In this fashion time they are finding fashionable sportswear which gives them a good look during exercise and sports. That's why the demand of our sportswear increased. We are very happy to take fitness conscious Sonu Sood to support 'PlayCool' - is a sports line of Yepme.com. Sonu Sood is India's pioneer actor, as well as a fit model and working with several film industries in India. Sonu perfectly match with the image of 'PlayCool' because popularity among youth of India.

International:

• Wal-Mart back on top of Fortune Global 500 list: US retail king Wal-Mart toppled Royal Dutch Shell from the top spot on the Fortune Global 500 list of the world's biggest companies, based on total revenues, the magazine said Monday. Wal-Mart Stores reported $476.3 billion in revenues for 2013 as it ramped up international business. Royal Dutch Shell of the Netherlands, which reigned for the prior two years, slipped to second place as revenues fell to $459.6 billion. Two Chinese energy companies Sinopec Group and China National Petroleum held the third and fourth spots, ahead of US oil and gas giant ExxonMobil. The United States still had the most companies on the Fortune 500 list "for now", Fortune said, but with diminished strength. There were 128 US companies on the list, reporting a combined $8.6 trillion in revenues, down from 132 last year. The number of Chinese companies on the list grew by six to 95, reporting $5.8 trillion in revenues. Meanwhile there were 150 European companies this year, slipping from 151 last year. "Global business is back," Fortune said. "After limping through a worldwide financial crisis and economic slowdown, the 500 largest companies ranked by revenues shattered all sorts of performance records in 2013." Their combined revenues rose to $31.1 trillion, a gain of 2.5 per cent from 2012, while profits skyrocketed 27 per cent to nearly $2 trillion.

• Samsung forecasts 25% drop in profit: Samsung Electronics has forecast a 25% drop in profit for the second quarter due to a slowdown in the smartphone market and a strong Korean currency. It expects to make an operating profit of 7.2 trillion won ($7.1bn; £4.2bn) in the April-to-June period, down from 9.5 trillion won a year ago. Its operating profit has now fallen for three straight quarters. Samsung is the world's biggest maker of mobile phones and the handset division accounts for the bulk of its profits. The South Korean firm said it "witnessed a slowdown in the overall smartphone market growth and saw increased competition in the Chinese and some European markets" during the period. Meanwhile, a stronger Korean currency also hurt Samsung's earnings during the period. The Korean won rose more than 11% against the US dollar and nearly 7% against the euro between July 2013 and end of June this year. A strengthening currency hurts profits of firms such as Samsung - which rely heavily on exports - when they repatriate their foreign earnings.

• Uber cuts prices in fare war with New York City taxis: Mobile car hire service Uber has temporarily cut the price of its cheapest service, UberX, by 20% to match the rate of New York City's yellow taxis. The move follows similar price decreases in San Francisco and Boston. Most analysts see the move as an effort to undercut competitors like Lyft and Hailo, as well as attracting newcomers. Uber drivers - who are paid around 80% of the total fare - will be forced to accept lower payments as a result. In a blog post announcing the fare changes, Uber countered: "What we've seen in cities across the country is that lower fares mean greater demand, lower pickup times and more trips per hour — increasing earning potential and creating better economics for drivers."

• SABMiller to sell Tsogo Sun stake: Global brewing giant SABMiller has announced plans to sell its stake in a leading African hotel chain. The beer and drinks maker owns nearly 40% of Tsogo Sun, which also operates casinos, but now says that "gaming and hotels are not core to our operations". It means its stake of more than 300 million shares, worth some $1bn (£580m), will be on offer in late July. However, a special placement has been made for Tsogo Sun to buy back nearly half of these shares for $260m. The second phase of the sale will see shares offered to institutional investors.

• Judith & Charles Expanding in New York: Judith & Charles wants to be better known in the U.S. The Canadian brand, designed by Judith Richardson and Charles Le Pierrès, is well entrenched in the Canadian market with nine freestanding stores. In addition to an existing unit on Third Avenue, Judith & Charles plans in 2015 to open a store at Brookfield Place in lower Manhattan. In the meantime, the brand recently unveiled a store on Columbus Avenue between 68th and 69th Streets. “Columbus is a trial for us,” Richardson said. “We had the opportunity to take over a lease for a year. We’re very pleased so far. We feel that Columbus Avenue could be a key location.” The streamlined, minimalist clothes are produced using fabrics from Italy and Japan. “Craftsmanship is really our passion,” Richardson said. “We’re raising the bar on maintaining the quality and fit of our clothes. We don’t have big surprises in terms of changing directions every season. Our customer appreciates that.” The Columbus Avenue store is designed to look like a showroom with breezy linen curtains hanging behind racks. Besides expanding in New York, Judith & Charles has opened franchises in Qatar and China. The brand wholesales to Holt Renfrew in Canada and a few independent retailers in the U.S., but eschews department stores. “My point of view on department stores is that it’s guaranteed sell-throughs and markdown money,” Richardson said. “We kind of shy away from that.”

• Karstadt CEO Resigns: Karstadt’s chief executive officer has resigned after just six months at the German department store chain. Eva-Lotta Sjöstedt joined the struggling firm from Ikea in February with an eye toward restoring profitability. The Swedish executive replaced Andrew Jennings when his contract expired. Sjöstedt hinted that her turnaround plan was not receiving full support from Karstadt owner Nicolas Berggruen, who acquired the chain in 2010. “After careful consideration, given the experience of recent months and full knowledge of the economic specifications, I now find that the conditions for the path I envisioned no longer exist,” she said. Chief financial officer Miguel Müllenbach and chief human resources officer Kai-Uwe Weitz will now lead Karstadt, according to the company. “This step came as a surprise to us and at a very difficult time for Karstadt,” chairman Stephan Fanderl said. “Our goal is now to decisively tackle the restructuring of Karstadt with experienced management.” The firm has not published recent figures. However, German business newspaper Handelsblatt reported in May that Karstadt had a net loss of 34 million euros, or $46.2 million at current exchange, in the first half of its 2013-14 fiscal year.

• Valérie Hermann Steps Down From Moncler Board: Valérie Hermann, recently tapped as president of Ralph Lauren Luxury Collections, on Monday resigned as a Moncler SpA independent director, “due to unforeseen professional commitments,” said the Italy-based company, following a board meeting. Hermann, a former president and chief executive officer of Reed Krakoff, also resigned as a member of Moncler’s Control and Risks Committee and Nomination and Remuneration Committee. Thanking Hermann for her contributions, Moncler’s board co-opted Gabriele Galateri di Genola onto the board until the next shareholders’ meeting, expected to be held in March or April next year to approve the group’s 2014 year-end financial statements. Galateri di Genola also takes over from director Alessandro Benetton as chairman of the Control and Risks Committee. Benetton, however, will remain member of the Control and Risks Committee and of the Nomination and Remuneration Committee.